Emergency Remediation Fraud & The ICA Working Group

Insurance Consumer Advocate (ICA) Robin Westcott’s working group, the Homeowners’ Policy & Claims Bill of Rights Workshop has identified some pervasive problems in the emergency remediation business  that, if resolved, could demonstrably reduce loss costs in the near term.

Identifying problems, of course, is light years from solving them but, it’s where any good fight begins.

After my blog on roofing fraud generated commentary from water extraction companies frustrated by similar fraud within their ranks,  I’ve been on a tear, if you will, to help others realize how runaway “claim inflation” within this seemingly innocuous cottage industry is, perhaps, Florida’s premier non-catastrophe cost driver.

Addressing fraud this systemic starts with understanding that water damage claims are number one across all insurers–approaching 50% of  the total annual claim payout, with an average claim often in excess of $10,000. Using Citizens as a gauge, the 2012 total forecasted payout just for bursting pipes (not weather related roof leaks, or back up of sewers, etc) was in excess of $142,000,000. (See NOTE #1 below).

Using a hypothetical carrier with 180,000 policies I showed how just the deductible and plumbers’ referral fee resulted in fraudulent claim inflation of $3,375,000 every year.  (See NOTE#2 below).

For all Florida property carriers including Citizens that’s roughly $150 million annually. (See NOTE #3 below). 

Then…when you add in the cost of unnecessary repairs, unnecessary drying services or water detection and the rank-and-file up-charging that everyone knows (and ICA workshop testimony confirms) is rampant, well…you get the ugly picture.


Listen to testimony from one fed-up water extractor, the owner of Mr. Dry Out, Matthew Jerabek.  It’s apparently quite routine to rely on fraudulent “claim inflation” to recoup deductibles and plumbing referral fees and to pad emergency remediation bills. You can see his frustration  and hear Robin Westcott’s appreciation for his willingness to go public and to offer solutions in a YouTube video isolating his testimony here.

Mr. Jerabek refuses to pay referral fees to plumbers.  Robin Westcott acknowledges that referrals ought to be rendered because of the level of service provided, not because of a $1500 phone call to be “kicked back” via an inflated insurance claim.

Along with unanimous agreement from members of the working group that referral fees need to be dealt with, was general agreement with another of Mr. Jerabeks’ idea’s; one practiced in other states specifically as a check and balance against emergency remediation fraud.  He suggests, and the ICA participants generally agreed, that each type of emergency service should be performed by a separate “licensed” provider.  When the entity that extracts standing water, is also the plumber who turned off the water and the entity that does the “dry out”, the mold remediation, the drywall replacement, the electrical, the unlicensed public adjusting and is the sole beneficiary of any assigned benefits, it’s a proverbial mess! One made even worse by abusive AOB practices, a lack of licensing, no required permits or inspections, no requirement for pre-work estimates and more.

Get a handle on emergency service fraud and assignment of benefits abuse and Florida homeowners could experience some real savings down the road!

Consumer Advocate Robin Westcott has done good work exposing the problems. It needs to be followed by a strong final report from her group and a strong response from lawmakers to codify the recommendations.

Stay tuned!


NOTE #1: numbers were taken from a Citizens report titled “Water Loss Update” presented to the Citizens Claims Committee, November 26, 2012.  A chart on page eleven shows a significant decline in public adjuster involvement in water damage claims after the prohibition against replacement cost holdback was repealed.  The average claim amount for just plumbing leaks was $10,390. The highest average water claim amount is “Back  up of Sewer or Drains” at $16,776 per claim. The  third highest water claim, “Accidental Discharge”, averaged $10,098 per claim. The lowest average payout for water damage was for roof leaks at $5,439.

NOTE #2: a well managed company with 180,000 policies might have only 3% (5400) claims each year.  About half, or 2700, are for water damage. If half of those are from leaking or busted pipes you have 1350 claims with a high likelihood that a plumber and a water extraction company will be called in. Assuming the claim is inflated by only the amount of the referral fee ($1500) and a deductible of, say… $1000, the insurer starts out $2500 in the hole on 1,350 claims every year for a total annual loss due to fraudulent claim inflation of $3,375,000.

NOTE #3: I made liberal assumptions to come up with the numbers, as follows: six (6) million property policies in Florida (4 million insured dwellings, 800,000 condo units, 600,000 mobile homes and, some renters policies); assuming a claims frequency of 4% annually you get 240,000 claims–half (120,000) are water claims and if half of those are from leaks or bursting of pipes you have an annual payout, for referral fees and deductible elimination only, that is somewhere in the neighborhood of $150 million.

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